Beware financial green & woke washing

In my previous article Is Bristol in danger of losing our status as green capital of Britain? I shared our recent research into how the Coronavirus pandemic has shifted attitudes towards personal finance.[i] In many ways, the results of this research were extremely encouraging. It’s clear that ethics and sustainability, including the treatment of vulnerable customers, have become more important to people during 2020. However, the results also told us that despite these attitudinal shifts, the proportion of consumers researching a company’s ethical or sustainable profile is still small. 

In our survey of over 2,000 people, almost half said good ethics and sustainability are important to them when making financial decisions. And the majority of people care about how a financial advisor treats its vulnerable customers. But only 1 in 5 say they actually research a company before buying from them. There is an important lesson here that as consumers and investors, we should be wary of green wash and woke washing[ii] by companies that don’t back up their claims with action. 

Do you know where your money goes?

Our research shows that people care about sustainable and ethical investing, and that awareness is higher than ever before. What’s more, the pandemic has led to even more of us wanting to invest in a way that not only preserves the environment but also protects our fellow human beings. In fact, in our research the percentage of people who felt that ethical investing was important rose from 40% in January 2020 to 49% in August 2020.

These findings are reinforced by Make My Money Matter, a campaign fronted by Richard Curtis that encourages people to understand where their pension money goes. Their research shows that 57% of people want to see their pensions go towards building a better future for people and the planet post-Coronavirus. But worryingly, nearly three quarters of people surveyed either do not believe, or do not know, whether their pension investments are in line with their values. 

Do your research

These findings highlight that it’s important to remain sceptical and be aware that green imagery and vague claims aren’t always backed up by action. Advertising campaigns promoting vegan products that are tested on animals, or sustainable manufacturing techniques that treat workers badly are both recent examples. Equally, a lack of bad media coverage doesn’t mean that a company behaves ethically and sustainably.

If you are concerned about investing responsibly, it would be wise to do your research and get advice. You can do this yourself, or a financial advisor will do the research for you. For example, checking the top 10 fund holdings for any dubious companies or industries, creating a portfolio with a clean top 10, and sharing the information with you.  

6 tips for responsible investing

So how do you ensure that your good intentions are backed up by sound investment choices? It’s not always simple, but these tips are a good place to start:

1. Identify your values and what is important to you.
2. Understand where your money is already invested, including your pension.
3. Find out which of your existing investments deliver on your values.
4. If there is a mismatch, research the options.
5. Develop a plan to set up new investments more in line with your values. 
6. If you need help with any of the above a financial advisor will be able to support you.

As well as giving you peace of mind that your investments are in line with your values, a good financial advisor will also explore your goals and tease out what is really important to you. Whether that is ethical investing or getting the highest return on your investment over a particular timescale. However, those two goals aren’t mutually exclusive. 

Positive performance

You may believe that by choosing ESG investments (Environmental, Social and Governance) your finances will suffer, and your investments might not perform as well as in other asset classes. This is not necessarily the case. 

Research by data provider Morningstar examined the long-term performance of hundreds of sustainable funds, showing that the majority have done better than non-ESG funds over one, three, five and 10 years. And NEST, the national pension provider, has invested seven percent of its portfolio in renewables, and its ethical fund is among its best performing. What’s more, we saw that at the start of 2020 sustainable funds on average have also proved more resilient to external shocks.[iii]

Growth of the future

It is becoming more accepted that sustainable and ethical investing are the new normal, rather than an exception. And changing behaviours are already contributing to a virtuous circle. As former Governor of the Bank of England, and supporter of Make My Money Matter, Mark Carney explains: 

“As people move their money or express their preferences, funds will have to look for new solutions that are consistent with what people want. That’s what creates the innovation and that’s what creates the jobs and growth of the future.” 

As we come to the end of a challenging year that feels like a very positive note to end on.

For more information on responsible investing get in touch or visit our website www.andersonfinancial.co.uk/specialist-advice/responsible-investors. 

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[i] 2,000 people from a GB nationally representative sample were asked about their (financial) consumer behaviour, decision making and attitudes. Now and retrospective (pre-pandemic). Mid-week omnibus (by Populus) with fieldwork taking place on the 26th and 27th August 2020.

[ii] For the purposes of this article, woke-washing is used to describe the act of cashing in on social justice (fair treatment of all people in society).

[iii] There is always a risk with any investment. You may get back less than the amount invested and it is wise to only invest money that you know you won’t need immediately. Information on past performance is not necessarily a guide to future.